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Cap and Trade

CAP AND TRADE
INTRODUCTIONThe threat of climate change in recent years is a real and potentially catastrophic threat to the health and welfare of our planet, as industrialized nations continue to base their economies on carbon intensive production. Recently, it has taken on a larger role in our national media, the public, and the government, as the effects of anthropogenic climate change become more evident. In the United States, for example, the year 2007 brought the first major piece of legislation in the country to address the problem under the Climate Security Act, and the United States Supreme Court ruled that the U.S. Environmental Protection Agency had authority to regulate carbon dioxide as a pollutant. Today, many politicians, economists, scientists, and environmentalists propose a solution that would create a regulated market based on emissions into the atmosphere, effectively internalizing all negative externalities. It’s called cap and trade, and it has a lot of potential to help incentivize the implementation of alternative forms of energy, has several different variations and alternatives, and has already been successful in many programs around the world.

IMPLICATIONS OF CAP AND TRADEThe “cap” of cap and trade is when government enforces a cap on emissions, which gradually gets smaller over time. The “trade” of cap and trade is enabling the free market to trade emissions permits, which can either be earned, bought, or given away. In order to reduce pollution, the government sets a cap on emissions and creates allowances to level off the cap. Sources are then free to buy, sell, or bank the allowances to use in future years. They can buy emissions credits when they need more credits to pollute, they can sell emissions credits if they can consume energy more efficiently, or they can bank their credits in order to invest them for future profits and early emissions reductions. At the end of the fixed compliance period set by policy makers, each source surrenders allowances. In theory, those who reduce emissions most cheaply will do so at the lowest cost to society (US EPA). For example, there are two companies that pollute. “Company A” can reduce their emissions cheaply and easily, but at first has little incentive to do so. “Company B” on the other hand cannot easily reduce their emissions, so they initially do not. Under a cap and trade system, both companies are allotted a certain amount of emissions permits. Because “Company A” can reduce their emissions more easily, they can sell their extra emission permits to “Company B” who may pollute more than their emissions permits allow. Overtime, the amount of emissions allowed for an emissions permit is reduced, which decreases the cost of innovation while increasing the cost to pollute, encouraging energy efficiency. Cap and trade often gets confused with two similar policy methods, command and control and environmental taxes, whose goals are similar, but whose means of reaching those goals are different. First, under command and control legislation, for example, the government sets a cap on emissions and simply penalizes anybody who does not meet set standardized goals, without any trading component. Command and control is better for more local health issues, since implementing command and control on a wider scale is much costlier. Second, under environmental taxes, the government taxes a set percentage per unit of emissions in hopes that emissions will go down. However, under environmental taxes, imperfect information makes it difficult to determine what the price of the tax should be. Cap and trade, on the other hand, allows the market to determine the most efficient price. According to a 2003 U.S. EPA Report, cap and trade offers more certainty for total emissions under a defined set of sources and has costs less to regulate than other forms of regulation. Since the market controls cap and trade, a few important factors of a market-based...

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...place on others. Instead of such draconian measures based on fiat, the preferred options rely on economic tools instead to provide incentives to industry to police itself by either incenting investment in emission-reducing and/or energy saving technologies or to reduce production in line with the total/social-costs rather than just the private/ producer-costs of production. Two such economic policies to consider in this regard are emission taxes and cap-and-trade policies.
Overview of Policy Problem: Carbon emissions reduction
Consider a company that faces an increasing marginal pollution abatement cost curve as in the Figure 1. Left unregulated it will choose not to reduce its carbon emissions (a.k.a abate carbon emissions) and avert facing the costs of abatement represented by the area underneath the marginal abatement cost curve represented by area (B + C + D) in the diagram below.
Figure 1: Marginal Costs and Marginal Benefits of Reducing Carbon Emissions
[pic]
Source: Econ 101: Carbon Tax vs. Cap-and-Trade, 2012, n.pag.
Suppose that policy analysts have determined that the economically efficient level of pollution abatement occurs at the point where marginal benefits of abatement equal the marginal cost costs of abatement as is suggested in economic theory. The resulting level of carbon emissions is e* (reduction in emissions is measured from the far right in the diagram above to...

...Cap and trade is the most environmentally and economically sensible approach to controlling greenhouse gas emissions and global warming.
The "cap" sets a limit on emissions, which is lowered over time to reduce the amount of pollutants released into the atmosphere.
The "trade" creates a supply and demand market for carbon allowances, helping companies innovate in order to meet their allocated limit. Companies can buy or sell allowances or bank them to use in the future years. The less they emit, the less they pay, companies have incentive to pollute less.
Emitters can release only limited pollution. Permits or "allowances" are distributed or auctioned to polluting entities: one allowance per ton of carbon dioxide, or CO2 equivalent heat-trapping gases.
A company may only emit as much carbon as it has allowances for.
The total amount of allowances will be equal to the cap.
Besides Buy and sell…………..
Such as Factories, Power plants, large scaled manufactures and facilities.
Save up their extra permits for later use.
Coal plant produces about 4 million tons of CO2/year.
Assessment – evaluates how successful the programs are carried out and determines whether additional actions are needed.
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...﻿INDIVIDUAL WRITTEN ASSIGNMENT MARKETING MANAGEMENT
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You are a marketing consultant, and you have been hired by Ice Fili: Make a structured assessment (PEST, 5-Forces, Value Chain, Osterwalder’s Business Model) of the situation of Ice Fili in the case. Explain what you think is relevant and why you think this.
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...Cap and Trade:
The Cap and Trade idea is defined as, “a regulatory system that is meant to reduce certain kinds of emissions and pollution and to provide companies with a profit incentive to reduce their pollution levels faster than their peers.” I simpler terms this means that the government rewards businesses that lower pollution. They government will set a limit or “cap” on the maximum amount of a certain emission that is permitted to be produced in a business. Then companies are allowed to sell or “trade” the unused segment of their restrictions to other companies that are having trouble meeting the restrictions.
A possible positive externality to this idea would be that the money that businesses gain in trading their unused amount under the restrictions stimulates economic activity. Also the businesses that are buying the extra amount that they can pollute will probably attempt to pollute less so that they do not have to become dependent on other companies to prevent going over the “cap.” A possible negative externality would be that a company’s cost to produce would go up because they would have to spend money on making things with less pollution. This may cause a decrease in supply in that certain good. This would affect the consumer because with a lower supply the price would most likely go up.
This is a government solution to the problem because the...

...Distinguish between a carbon-tax and a cap-and-trade strategy for reducing carbon dioxide and other so-called greenhouse gases (that are believed by many scientists to be causing global warming).
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...free trade.
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...Capabilities Overview
1.0 Why ATS?
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